Tiger Asia Loses Challenge to Hong Kong Regulator’s Power

By Eleni Himaras -
Apr 30, 2013

Tiger Asia Management LLC, which
admitted in a U.S. settlement to illegally using inside
information to trade Chinese bank stocks, lost a challenge to a
Hong Kong regulator’s right to pursue it for the same offense.

Chief Justice Geoffrey Ma of Hong Kong’s Court of Final
Appeal today dismissed Tiger Asia’s bid after hearing about two
hours of arguments and without calling on the city’s Securities
and Futures Commission to respond. He said written reasons would
be handed down later.

The ruling confirms the regulator’s ability to sue parties
it suspects of market misconduct independently of a criminal
prosecution or a civil inquiry. The New York hedge-fund firm
claimed such action by the SFC was an abuse of process and won
an initial ruling in June 2011, which was overturned last year
by an appeal judge.

SFC Enforcement chief Mark Steward said that the decision
vindicates the regulator’s position and strategy. The power is a
key part of its strategy “in bringing wrongdoers face to face
with the real consequences of their misconduct,” he said in a
November speech.

Alan Linning, a lawyer for Tiger Asia, declined to comment.

Private Placements

The hedge-fund firm, which has no employees or physical
presence in Hong Kong, agreed to U.S. civil and criminal
settlements of more than $60 million in December for using
inside information received through private placements to sell
short shares of China Construction Bank Corp. (939) and Bank of China
Ltd. The SFC in Hong Kong first accused the firm of the
misconduct in 2009.

Tiger Asia was seeded by billionaire Julian Robertson and
started in 2001. Founder Bill Hwang said in August that the fund
would return all outside capital to investors. Shawn Pattison, a
spokesman for Hwang, declined to comment on his business plans.

The SFC’s attempts to pursue wrongdoers are constrained by
Hong Kong’s double jeopardy law, which doesn’t allow both
criminal and civil proceedings for the same offense. Criminal
proceedings are also hampered by the fact many offenders aren’t
based in Hong Kong. The regulator has no record of extraditing
suspected financial criminals since its creation in 1989.

Hontex Settlement

About 46 percent of cash equity and 25 percent of
derivative trading turnover comes from overseas investors,
according to the most recent Hong Kong stock exchange data.

The SFC used the power to sue Chinese fabric maker Hontex
International Holdings Co. for compensation for investors who
were misled by its listing prospectus. On the 13th day of the
trial in June, the company settled the case and agreed to pay
shareholders HK$1.03 billion ($132.7 million).

“The market as a whole, benefits from knowing there is now
a mechanism to undo the consequences of false or misleading
prospectuses,” Steward said in his November speech. The
regulator has a string of other cases of alleged misconduct
cases before the court, he added.

Today’s decision by the court demonstrates it is prepared
to uphold the powers of regulators in the broadest terms
possible, according to Gareth Hughes, a partner at Ashurst LLP
in Hong Kong who isn’t involved in the case.

“It is a springboard for the SFC to test the boundaries of
its powers in other areas,” he said.

The case is Securities and Futures Commission and Tiger
Asia Management LLC, Sung Kook Hwang Bill, Raymond Park, William
Tomita, FACV10/11/12/13 2012 in the Hong Kong Court of Final
Appeal.